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TMI Blog2011 (8) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... Having regard to the facts and circumstances of the case, the appellant submits that the disallowance be deleted." 5. The Ld. Counsel for the assessee Shri. P.j. Pardiwalla submitted that the decision in the case of 209 ITR 649 and 326 ITR 425 are in favour of the assessee. The Mumbai High Court in the case of Otis Elevators (I) Ltd vs CIT 195 ITR 682(Bom) has held as follows: "Payment of club fees made to promote business interests and membership of club would provide officers better contact with persons in good position and would result in publicity, Club Fees is allowable expenditure." 6. Respectfully following the decision of the above cited decision, we are of the opinion that Membership in clubs are taken with the expectation that it would enable the officers of assessee to meet persons in high social status which would result to the growth of the business of the assessee. The expenditure can be said to have been incurred is wholly and exclusively for the purpose of his profession and hence allowable u/s 37(1). The appeal of the assessee on this issue is allowed. 7. Ground No. 2 to 4 raised by the assessee read as follows: "Both the lower authorities erred in holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 0.12%. c) The assessee has followed a regular method of accounting which has been accepted by the Department in the past. In the context of the relevant figures indicated above, there can be no dispute with the Auditors remark that the figure that would be required to be included in closing stock is not material. d) The appellant submitted that if the Assessing Officer wants to rely on the Tax Audit Report, he cannot adopt a piece-meal approach and rely on one observation, ignoring the remark of the auditor on the entire issue. 11. The Ld. CIT(A) held as follows: I have considered the submissions of the appellant very carefully. There is merit in the claim of the appellant that if the Assessing Officer wants to rely on the tax audit report, he is required to rely on the same in its entirety. The Tax Auditor has clearly indicated that he incidence of purchase tax in closing stock is not material. This is also apparent from the fact that the purchase tax involved in the instant case is Rs. 25,12,691/- as compared to the total purchases of raw materials for the year of Rs. 2,17,40,00,000/-. Further, considering that the appellant had followed a regular method of accounting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48. All the bills have been produced at pages 10 to 100 of the Paper Book. As far as the uninterrupted power supply system (UPS) is concerned, the submissions of the assessee is that it is part and parcel of the computer-neither can function without the other in today's environment of fluctuating power supply. It is necessary to adjunct to the computer, and depreciation is allowable thereon @ 60%. 15. The Ld. CIT(A) held as follows: "The UPS system is not a part of the computer system and is more akin to air-conditioner or furniture and should not be entitled to the same rate of depreciation as that provided on the computer. In the decision reported in ITO Vs Samiran Majumdar (280 ITR (AT) 74 (Kol), it has been held that a printer, a scanner and a colour Xerox machine were an integral part of the computer system and were, therefore, entitled to the higher rate of depreciation. The reliance placed by the appellant on this decision is distinguishable. A printer or scanner is ordinarily utilizable only in conjunction with the computer system. UPS, on the other hand, is machinery which can be utilized for uninterrupted power supply, may be for lighting or any other purpose. Just bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or machineries in the month of September was because minor accessories or parts had to be added later, and in some cases mere fabrication work was pending which was duly completed before 30.09.03. it is common for the accounting entry to be passed at the end of the quarter, even if the asset is put to use earlier. To demonstrate the above, a list of all the assets capitalized on 30.09.2003, (which were bought for use in the plant at the appellant's factory at Ankleshwar and Patancheru) is given at Page 100 of the compilation. The appellant also submitted the bills of these purchases (Page 102-189 and Page 191-194 of the Compilation) which clearly show that the assets were purchased much before September 2003. Further, the appellant also submitted certificates from the plant managers at Ankleshwar and Patancheru factories (Page 101 and page 190 of the Compilation). Thus, the claim of the Assessing Officer that the assessee company had purchased Plant & Machinery amounting to Rs. 43,73,395/- on 30.09.2003 is incorrect. The assessee company has merely passed accounting entries on 30.09.2003. the appellant submitted that an accounting entry has no relevance to whether an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id profits. 24. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant very carefully and I am unable to agree with the contentions raised. The accounts of the appellant show that both these items have been duly credited to the profit and loss account. In my opinion, the judgment of the Supreme Court in CIT Vs Apollo Tyres (255 ITR 273) squarely applies. It was held by the Hon'ble Apex Court that the AO while computing the book profits has only the power of examining whether the books of account have been properly maintained in accordance with the Companies Act. The AO, thereafter has limited power of making additions and deductions as provided for in the explanation. The AO does not have the jurisdiction to go behind the net profits shown in the profit and loss account, except to the extent provided. The AO has to accept the authenticity of the accounts, which have been certified by the Statutory Auditors, and approved in General Meeting. He cannot embark upon a fresh enquiry in regard to the entries made." 25. We find that the decision in the case of Rain Commodities 41 ITR 449 is against the assessee, whatever amount that have been credited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rolta India Ltd., 330 ITR 470, wherein it has been held as follows: "It is clear from reading sections 115JA and 115JB of the Income-tax Act, 1961, that the question whether a company which is liable to pay tax under either provision does not assume importance because specific provision is made in the section saying that all other provisions of the Act shall apply to a MAT company (section 115JA(4) and section 115JB(5) ). Similarly, amendments have been made in the relevant Finance Acts providing for payment of advance tax under sections 115JA and 115JB. Section 234B is clear that it applies to all companies. The pre-requisite condition for applicability of section 234B is that the assessee is liable to pay tax under section 208 and the expression "assessed tax" is defined to mean the tax on the total income determined under section 143(1) or under section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115J / 115JA in the levy of interest under section 234B. The expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of section 115J / 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue read as follows: "2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that fees paid to agency which installed and implemented SAP software to be part and parcel of the acquisition of software itself and thereby allowing 60% depreciation on the same. 3. Without prejudice to the above ground, the Ld. CITR(A) erred in holding that fees paid to agency which installed and implemented SAP software to be part and parcel of the acquisition of software and thereby allowing 60% depreciation on the same when the assessee himself submitted a working of disallowance during the assessment proceedings. 37. The AR submitted as follows: " The appellant submitted that SAP is an enterprise-wide software, which enables an organization to have an integrated platform for financial accounting linked to manufacturing operations, stock, debtors, final accounts etc. It enables financial accounts to be maintained and at the same time to generate management information critical in the present environment. TCS is associated with SAP AG, Germany as an implementer to implement the roll out of the enterprise software. A copy of the service agreement e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be part and parcel of the acquisition of the software itself. The installation and implementation of such an enterprise wide software has to be considered as part and parcel of the software delivery system, and cannot be divorced in the manner suggested by the AO. Possibly, the appellant may have been able to contend the entire expenditure is allowable as a revenue expenditure, but it has been fair to capitalize the same to the software and claim depreciation thereon." 39. Expenditure incurred in installation/commissioning an asset should be considered as part of cost of acquisition of asset and depreciation allowed thereon. The Ld. CIT(A) had correctly allowed depreciation at 60% on the expenditure on installation treating it as part of cost of acquisition of software. Hence, Revenue's appeal on this issue is dismissed. 40. Ground No.4 raised by the Revenue reads as follows: "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,70,822/- made u/s 40A(9) of the I.T. Act." 41. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant. In the modern context, such expenditure can only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by admitting additional evidence in violaion of Rule 46A of the I.T. Rules. 44. The assessee submitted as follows: "The relevant facts are that a subsidiary by name of Ralchem Ltd. was merged with Rallis India Ltd under orders of the Bombay High Court from 1st April, 2003. Ralchem Ltd. had a closing CENVAT credit balance of Rs. 58,10,379/- (relevant extract of closing Tax Audit Report of Ralchem Ltd. is given at page 196-197 of the Compilation). This CENVAT credit balance was treated as an opening CENVAT credit balance in the books of the assessee post merger. The usage of the CENVAT credit of Ralchem Ltd. has enabled the assessee to pay lesser excise duty. If the AO had seen the Auditors chart carefully, he would have observed that the CENVAT credit available and utilized results in an increase in profit. Therefore, merely because of the amalgamnation, there is no reduction in the taxable income. This presumption of the AO is wholly erroneous in fact and in law. The utilization of CENVAT credit is completely revenue neutral and there is no addition called for to the profit and loss." 45. As held by the Ld. CIT(A) as a result of grossing up u/s. 145A, there is an increase i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,18,63,000/- and the AO has completely ignored the fact. Further the brand equity had to be paid by the assessee company as per the agreement and it has done so. 51. The ld. CIT(A) discussed elaborately in his order and finally concluded as follows: "The accounts of the appellant for the relevant year which have been appended in the compilation disclose profit before taxation of Rs. 26.18 crores, and profit after taxation of Rs. 25.54 crores. I find that the payment of Rs. 70,00,000/- does not contravene paragraph 12.2 of the Agreement because it does not exceed 5% of the annual profits before tax. Further, the calculation reproduced by the AO in the assessment order itself shows that the percentage prescribed in the Agreement has been duly adhered to. In the light of the relevant figures, it cannot be said that the subscriber's business is becoming unprofitable. In the light of these crucial facts, there is no option, but to conclude that the finding of the AO is wholly erroneous on facts. No doubt, the appellant did not have a taxable business income for the year in the income tax computation, because of set off of brought forward losses, but that is an irrelevant factor for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjected to the disallowance of Rs. 1,09,22,869/- being brokerage paid to Tata Sons Ltd. The assessee submitted that the AO has disallowed certain payments made to Tata Sons Ltd. by relying on conjectures and surmises which are unjustified in fact and in law. Tata Sons has a separate full fledged division called "Tata Financial Services". This division arranges loans for group companies, as also funds infusion in times of need, temporary accommodation in the form of ICDs, etc. and charges a brokerage for carrying out the said activities. The assessee further submitted that the AO has given a wrong finding that loans and borrowings from international corporate markets can be obtained without incurring expenses for brokerage. The assessee pointed out that in order to obtain a high value loan (Rs. 75 crores in the instant case) from Standard Chartered Bank, adequate security must be offered. This security has been given by three Tata Group companies namely Tata Tea Ltd., Tata Chemicals Ltd. and Tata Sons Ltd. by way of "Comfort letters". These letters indemnify the bank against any default committed by Rallis India Ltd. The arrangement for this "guarantee" and other related work for ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Ralli House instead of Rs. 1,20,71,800/- as computed by the AO." 61. The AO has taken a bare plot of land on 1160.75 sq. mtr and applied thereon the rate adopted by the Regd. Valuer. 62. On further appeal before the Ld. CIT(A), the ld. CIT(A) observed that the asset which have been sold for which consideration has been received amounting to Rs. 56 crores, was a plot of land on which stands an existing building having a built up area of 62,139 sq.ft. and therefore the AO is required under section 55 (2)(b) to value the same asset which has been sold. 60. The Ld. CIT(A) further held as follows: "The section makes it clear that it is the same asset, which is being sold, which is required to be valued as at 1st April, 1981 otherwise giving the assessee this benefit has no meaning, if the AO were allowed to change the character of the asset. Further, as compared to the realized sale price, the value adopted by the registered valuer of Rs. 4,50,50,775/- as at 1st April, 1981 appears fair and reasonable. The AO's value appears unreasonably low. For all the above reasons, I am of the opinion that the AO erred in arrived at his own estimate at the fair market value of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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